Mukti

The two-handed people

Posted in economics, macro by jrahman on January 9, 2020

বাংলাদেশের অর্থনীতিবিদেরা …. বলতেছে, ক্রাইসিস আছে আবার সম্ভাবনাও আছে। তাই যেই দিকেই অর্থনীতি যাক, ঊনারা বলতে পারবেন ।  আমি কিন্ত, আগেই বলছিলাম।  (Bangladeshi economists …. are saying there is crisis, but there is also potential.  So, whichever way the economy goes, they can claim — I told you so.)

A brilliant autodidact he may be, but if the renowned Facebook pundit / activist  Zia Hassan had any idea about economics, he probably wouldn’t have made the above statement.

For one thing, economists are notorious for not reaching unanimity on major questions.  Take the financial markets for example.  Just a few years ago, Eugene Fama and Robert Shiller jointly won the Bank of Sweden Prize (aka Economic Nobel) — except the former claimed that financial markets are efficient and things like bubbles can’t really exist, whereas the latter has shown why and how bubbles form quite frequently.

More fundamentally, economics is fundamentally about trade offs, choices, and opportunity costs.  And anyone trained in that discipline instinctively thinks about ‘on the other hand’.  This is a feature, not bug, of economists’ thinking.  Not for nothing that former American president Harry S Truman hankered for a one-handed economist!

Turning to Bangladesh, there is absolutely nothing contradictory about seeing potentials and risks — the two are not mutually exclusive.  Bangladesh has achieved remarkable economic progress in the last 30-40 years.  One can quibble about the exact magnitude, precise causes, and to whom the credit should accrue.  But progress has been made and there are potentials for more — to deny this is nonsense.

And yet, the realisation of that potential is not guaranteed.  There are many challenges that need to be overcome.  Specifically, and immediately, there are problems with non-performing loans in the state-owned banks.  This is clearly recognised by anyone who has looked at the data.  But is it crisis?  I am not aware of any economic model or tool that would allow one to accurately forecast a financial crisis.  Even in the advanced economies such a feat is not possible — the data is simply too infrequent and imprecise.  Beware of anyone making such a forecast — they are more likely to be a Facebook pundit than an economist.

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Perfomance anxiety

Posted in economics, institutions, macro, micro, political economy, Uncategorized by jrahman on December 21, 2019

Under Article IV of the IMF’s Articles of Agreement, a team of Fund staff visits each member country once a year, collects economic and financial information, and holds extensive discussions with officials on policy matters.  This is then published in its website.  The latest Article IV report for Bangladesh came out in September, stating that Failure to effectively address the problems in the banking system, including high non-performing loans pose a medium likelihood risk to the economy, with a medium-to-high impact in the near term if it hit — High and increasing non-performing loans and low capital adequacy would hamper the banking sector’s ability to finance business investment, add fiscal burden, and hamper growth.

Let’s unpack this.  In doing so, we are going to look at official data.  Yes, there is considerable scepticism about the veracity of official figures.  But official data is all there is to go on, and nihilism of trust nothing but one’s gut instincts is not analysis. As it happens, even official data tell a potentially scary story.

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The 2020 outlook

Posted in economics, macro by jrahman on November 8, 2019

When trying to get back to the habit of writing, it is useful to start with something that is in one’s comfort zone.  That, for me, is obviously the economy, except it has been years that I have seriously read or paid attention to the Bangladesh economy.  I guess doing a post on the macroeconomic state of play months out from the new decade is a good excuse to read up on the subject.

Back when I used to think about this stuff more regularly, 7-8 per cent growth was considered outlandish.  In its October World Economic Outlook, the IMF forecasts Bangladesh’s economy to grow by over 7 per cent a year on the back of remittance inflows into the next decade, coming off recent high of 8 per cent.  Inflation is expected to be around the Bangladesh Bank’s target of 5½, and strong export growth is expected to underpin a sustainable current account deficit.

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Bangladesh Paradox

Posted in development, economic history, economics, macro, political economy by jrahman on February 24, 2019

 

A new initiative, led by Asif Shibgat Bhuiyan.

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Basu’s bizarre bakwas

Posted in development, economics, macro, political economy by jrahman on May 6, 2018
Rubbish, Worthless, Nonsense, Silliness
(Urban Dictionary)

Upon being asked by a friend whether I had read Kaushik Basu’s recent piece on Bangladesh, my first reaction was — is that the rather lazy piece on why Bangladesh is doing well?

Let me note my gratitude to the friend for pushing me to read the piece. It is, to use the favourite adjective of Bangladesh’s Finance Minister, just bogus.  Out of respect for my personal interactions with the author, I will refrain from using that term.  But this bizarre article should still be debunked.

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Apocalypse later, maybe

Posted in development, economics, macro by jrahman on October 21, 2017

As I read about the 19th Congress of the Chinese Communist Party, it occurred to me that throughout my professional career, for some reason or other, I have had to think about the consequences of a hard landing in the Chinese economy.  It also occurs to me that I first started thinking about Bangladesh towards the end of graduate school — that is, I first fretted about an economic crisis in our People’s Republic before I ever thought about the other one.  Then I remembered this cautionary note about China (and India), which apply just as well to Bangladesh.

In its just released World Economic Outlook, the IMF forecasts Bangladesh economy to grow by 7% a year over the next few years.  It has been a while since I looked at the detailed data, so I am not in a position to comment on whether the IMF is too optimistic.  Look at the chart below, and think about whether 7% growth would be too optimistic?

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Ramadanomics

Posted in economics, labour, macro, society by jrahman on June 19, 2016

Ramadan fasting is like no other Islamic ritual.  In the month of Ramadan, those who never perform the pre-dawn Fajr prayer get up even earlier to eat, only to abstain until dusk.  And after a month of that, even those who would otherwise never set foot in a mosque line up in unison to kneel towards Mecca.   For an entire month, from cooking, attire, TV to intimacy — the very lifestyle of a billion plus people change.  Except perhaps the aversion to pork, observance of, or at least respect to, the Ramadan fasting is arguably the most ubiquitous characteristic of Muslims.

Given its prevalence and ubiquity, Ramadan must have observable economic impacts.  Exactly what might they be?  In a fascinating paper, Filipe Campanile and David Yanagizawa-Drott of Harvard’s Kennedy School provide us with some answers.*  Summary — fasting makes us happier, if poorer.

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Khichuri index

Posted in economics, labour, macro by jrahman on December 24, 2015

A staple of political rhetoric in Bangladesh is to ensure affordability of rice, lentil, oil and salt.  Throw in a kilogram of coarse rice, 250 grams of red lentil, 40 ml soya bean oil and 10 mg salt and we get a rather bland plate of khichuri.  CEIC Asia database provides monthly retail prices of these essentials in Dhaka with a lag.  Currently, the latest data point is August 2014.  Still, using the bland recipe and prices (and smoothing the data by taking a 12-month moving average), we can get a sense of how the price of our plate of khichuri has evolved over time — for example, when BNP was turfed out in January 2007, such a plate cost around 35 taka, which rose to around 60 taka when the Awami League returned to power in January 2009, and was around 70 taka when its five year term expired.

Of course, to say anything sensible about prices, we need to have a sense of income.  From the same source, we can get daily wage of a skilled factory worker.  Her wages went from around130 taka a day in January 2007 to over 210 taka two years later to over 300 taka further five years on.

Putting the two together, we can get what I am going to call the Khichuri Index — plates of khichuri an average industrial worker can buy in Dhaka.  The chart below shows how the index has evolved between January 2000 and August 2014 (the period I have data for).

khichuri

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Surviving the white crow

Posted in Bangladesh, democracy, economics, governance, macro, political economy, politics by jrahman on January 20, 2015

Nassim Nicholas Taleb popularised the term ‘black swan’ in his 2007 book.  It comes from the Latin expression rara avis in terris nigroque simillima cygno, meaning “a rare bird in the lands, very much like a black swan” — they didn’t have any black swan in Europe, and thought swans must be white.  That notion changed when the Europeans came to Australia.  Taleb pithily summarises his thesis as:

What we call here a Black Swan (and capitalize it) is an event with the following three attributes. First, it is an outlier, as it lies outside the realm of regular expectations, because nothing in the past can convincingly point to its possibility. Second, it carries an extreme ‘impact’. Third, in spite of its outlier status, human nature makes us concoct explanations for its occurrence after the fact, making it explainable and predictable.

In Bangladesh, perhaps we could think about ‘white crow’ events — our crows are black, we think crows must be black, but of course there are white crows Down Under.

Taleb’s work gained much popular acclaim after the 2008-09 financial crisis.  The thing about black swans / white crows, however, is that they are hard to predict ex ante.  That’s Taleb’s first attribute.  As such, for analysts and policymakers, it might seem that Taleb has little of practical value to offer.

His subsequent work seeks to address this concern.  In a widely read Foreign Affairs article*, Taleb and a co-author argues:

Thus, instead of trying in vain to predict such “Black Swan” events, it’s much more fruitful to focus on how systems can handle disorder—in other words, to study how fragile they are. Although one cannot predict what events will befall a country, one can predict how events will affect a country. Some political systems can sustain an extraordinary amount of stress, while others fall apart at the onset of the slightest trouble. The good news is that it’s possible to tell which are which by relying on the theory of fragility.

…..

For countries, fragility has five principal sources: a centralized governing system, an undiversified economy, excessive debt and leverage, a lack of political variability, and no history of surviving past shocks.

How does Bangladesh look through the prism of Taleb’s theory?  I’d argue we should be at least concerned about the possibility of things falling apart, though there are also things to be hopeful about.

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Books

Some time ago, there was a facebook meme about 10 books:

List 10 books that have stayed with you in some way. Don’t take more than a few minutes and do not think too hard. They do not have to be the great works of literature, just the ones that have affected you in some way. Tag 10 friends and me so I can see your list.

Over the fold, for archival purposes, are two lists — one general, the other economics related.

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